Employee Benefit

and
Pension Schemes

Submitted By:Payal Yoganandi-11490

Jeetendra Sadhu

Employee Benefits
1.
2.
3.
4.
5.
6.

The meaning of employee benefits

The rationale for employee benefits
Employee benefits strategies and policies
Types of employee benefits
Administering benefits
Total reward statements

The meaning of employee benefits

Employee benefits consist of arrangements

made by employers for their employees that

enhance the latters well-being. They are
provided in addition to pay and form
important parts of the total reward package.
Benefits are sometimes referred to
dismissively as perks (perquisites) or fringe
benefits, but when they cater for personal
security or personal needs they could hardly
be described as fringe.

Rationale for employee benefits

provide for the personal needs of employees
means of increasing their commitment to the

organization and demonstrating that their

employers care for their well- bieng.

Employee benefits strategies and

policies
The strategy forms the foundation for the

formulation of employee benefit policies.

Employee benefit policies are concerned with:
the types of benefits to be provided, taking into
account their value to employees, their cost and the
need to make the benefit package competitive;
the size of the benefits;
the need to harmonize benefits;
the total costs of benefits provision in relation to the
costs of basic pay;
the use of flexible benefits.

Types of employee
benefits
Personal security
Health care
Insurance cover
Sick pay
Redundancy pay
Career counseling
Financial assistance
Company loan
Season ticket loan
Mortgage assistance
Relocation packages
Fees to professional bodies

Cont..
Personal needs
maternity and paternity leave and pay above the
statutory minimum
leave for personal reasons
childcare through workplace nurseries or vouchers;
pre-retirement counseling
personal counseling through employee assistance
programmes
sports and social facilities
company discounts
retail vouchers to buy goods at chain stores

Holidays
a minimum of 20 days paid holiday per year, including bank
holidays.
Basic holiday entitlements are typically five weeks plus bank
holidays,
The entitlement for holiday begins to accrue on the first day at
work.
Company cars
still remain one of the most valued perks, perhaps because

people do not have to make a capital outlay, do not lose money

through depreciation and are spared the worry and expense of
maintenance.

Other benefits
free car parking, Christmas parties and tea/coffee/cold drinks

Voluntary (affinity) benefits

opportunities for employees to buy goods or services at
discounted prices.
Popular voluntary benefits include:
Health: private medical insurance, dental insurance, health screening.
Protection: critical illness insurance, life insurance, income protection
insurance, personal accident insurance.
Leisure: holidays, days out, travel insurance, computer leasing, bicycle
leasing, pet insurance, gym membership.
Home: household goods, online shopping.

Concierge services
include dealing with home and car repair and maintenance,
financial services, buying presents, restaurant reservations,
theatre tickets and travel arrangements.

Administering benefits
can be expensive
There should be a budget for employee

benefit costs and expenditure should be

monitored against it.
Regular surveys should be undertaken of the
attitude of employees to the benefits
package.

Total reward statements

communicate to employees the value of the

employee benefits such as

pensions, holidays, company cars, free car

parking and subsidized meals they receive in

addition to their pay.
The aim is to ensure that they appreciate the
total value of their reward package. Too often,
people are unaware of what they obtain in
addition to their pay.

Armstrong's handbook of reward management practice improving performance through

reward 3rd ed.page
no.387

Flexible Benefits
1.
2.
3.
4.

The meaning of flexible benefits

Reasons for introducing flexible benefits
Types of flexible benefit schemes
How to introduce flexible benefits

The meaning of flexible benefits

Flexible benefit schemes give employees a

choice within limits of the type or scale of

benefits offered to them by their employers.
A wide variety of approaches is available.
Interest in such schemes has been generated
because employee benefits are not all equally
wanted or appreciated by the staff that
receive them and, from the employers point
of view, some benefits will not therefore
provide value for money.

Reasons for introducing flexible

benefits
Flexible benefit schemes may be introduced in order to:
meet the diverse needs of employees and increase the perceived
value of the package to them enabling them, to a degree, to
decide for themselves what benefits they want and the size of
particular benefits to suit their own life style rather than being
forced to accept what their employers think is good for them;
enable employers to get better value for money from their
benefits expenditure because it meets the needs and wants of
employees;
control costs by providing employees with a fund to spend rather
than promising a particular level of benefits;
aid recruitment and retention as flexible benefits are generally
preferred by employees to fixed benefits of equivalent value;
help to harmonize terms and conditions in a merger.

Types of flexible benefit schemes

Flex individual benefits
Employees are given the opportunity to vary the size of individual
benefits, paying extra if they want more or, in effect, being paid
cash if they want less. A typical example is a flexible car scheme.
Another common arrangement is to provide scope, within limits,
to buy or sell holiday time over the holiday year; for example, so
many extra days could be bought at the daily rate of the
employee or so many could be sold and the amount at the daily
rate added to pay.
Flex existing entitlement
Employees may choose to increase, decrease or end their current

benefits and select new benefits from the menu provided. The
value of the benefits bought and sold is then aggregated and the
net amount added to or deducted from pay.

Flex fund
Employees are allocated a fund of money to
spend on benefits from a menu. This is
therefore sometimes described as the
cafeteria approach.
The value of the flex fund is big enough to
enable individual employees to buy their
existing benefits and thus retain them without
additional cost.

How to introduce flexible benefits

The steps required to introduce flexible benefits are

described below:
Define business need
Seek views
Decide objectives and essential elements
Set up project team
Decide who is going to carry out the development work
Design scheme
Communicate details of the scheme
Pilot test
Introduce scheme
Evaluate scheme

Pension Schemes
1. The nature of occupational pensions
2. Why they are provided
3. The two main types of occupational schemes

defined benefit and defined contribution

4. Other types of pension schemes
5. The legal limits on providing pensions advice
6. Communicating to staff about pensions

The nature of occupational pensions

Pensions provide an income to employees when they

retire and to their surviving dependants on the death

of the employee, and deferred benefits to employees
who leave.
Occupational pensions are the most significant
employee benefit and are a valuable part of the total
reward package. But they are perhaps the most
complex part.
The so-called pensions crisis has arisen because
many occupational schemes are underfunded and
suffering the strain of having to cope with more
pensioners who are living longer.

Why they are provided

they demonstrate that the organization is a

good employer concerned about the long-term

interests of its employees
Good pension schemes help to attract and
retain high quality people by maintaining
competitive levels of total remuneration.

Types of occupational schemes

1. Defined benefit (final salary) schemes
Pension entitlement on retirement
On retiring the employee is entitled to a pension that is calculated as a fraction of their final salary (on retirement or an
average of the last two or three years) multiplied by the length of pensionable service.
The maximum proportion of salary allowed by the Inland Revenue is two-thirds of final salary after 40 years service.
The amount of the pension depends on the final salary, the value of the annuity that provides the pension and the accrual
rate. The accrual rate refers to the fraction of final salary that can be earned per year of service. When a pension is described
as 1/60th it means that 40 years service would produce a two-thirds of final salary pension, and 30 years would produce a
pension of half the final salary. This is a fairly typical fraction in private sector firms.

Employer and employee contributions

Employer contributions can be a fixed percentage of salary. Alternatively the percentage increases with service or is a
multiple of the employees contribution (eg the employer contributes 15 per cent if the employee contributes 5 per cent). The
level of employer contribution is typically around 16 per cent.
Employee contribution rates vary considerably, ranging from 3 per cent to 15 per cent with a median of around 8 per cent.
Pension fund

Employee and employer contributions are paid into a combined fund and there is no direct link between fund size and the
pensions paid.
The money remaining in the fund after any lump sums have been taken out is invested in an annuity to provide a regular
income, the amount of which may be revised upwards periodically to compensate for inflation.

Dependants

Dependants are entitled to a percentage of the employees pension entitlement if he or she dies during retirement or in
service with the company.

Lump sum
Part of the pension may be exchanged for a tax-free lump sum, up to a maximum under Inland Revenue rules of 1/80th per
year for up to 40 years service.

2. Defined contribution (money purchase) schemes

Pension entitlement

Contributions

The employer contributes a defined percentage of earnings, which may be fixed, age-related or
linked to what the employee pays. The level of employer contribution is typically around 6 per cent.
The employee also contributes a fixed percentage of salary.

Pension fund

The contributions are invested and the money used at retirement to purchase a regular income,
usually via an annuity contract from an insurance company. The retirement pension is therefore
whatever annual payment can be purchased with the money accumulated in the fund for a member.
Members have individual shares of the fund, which represent their personal entitlements and which
will directly determine the pensions they receive.

Dependants

The employee receives a pension on retirement that is related to the size of the fund accumulated
by the combined contributions of the employee and employer. The amount of the pension depends
on the size of contributions, the rate of return on the investment of the accumulated fund and the
rate of return on an annuity purchased by the employer. It is not related to the employees final
salary.

Dependants receive death in service and death in retirement pensions. 398 Employee Benefit and
Pension Scheme

Lump sum

One-quarter of the pension can be taken as a tax-free lump sum on retirement.

Comparison of defined benefits and

defined contribution schemes

Other types of pension schemes

Hybrid schemes
Personal pensions
Group schemes
Stakeholder pension
Executive pensions
The state pension scheme
The Basic State Pension
The State Second Pension

The legal limits on providing pensions advice

Specific advice on the merits or otherwise of a particular personal

pension plan personal pensions are classed as investments by the

Financial Services Act can, however, be given to employees:
On the companys occupational pension scheme, since it is not classed as an

investment.
About the general principles to be borne in mind when comparing an
occupational pension scheme with a personal pension; these could include
spelling out the benefits of the companys scheme, thus leaving employees
in a better position to compare the benefits with whatever an authorized
adviser may indicate are the benefits from a personal plan. What should not
be done is to tell people categorically that they will be better off with the
companys scheme or to advise them to look elsewhere.
On their rights, for staff who are leaving, to preserve their pension and the
advisability of finding out from their prospective employer whether existing
rights can be transferred to their scheme and, if so, what the outcome will
be in terms of pension rights at the new company.
On the general advantages of making additional voluntary contributions.

Communicating to staff about pensions

Good schemes demonstrate that employers care about

the future security and well-being of their employees,

and pensions are a valuable means of gaining and
keeping employee commitment to the organization.
It is particularly important to communicate the reasons
for any changes and how they will affect staff. This is a
demanding situation if a defined benefit scheme is to
be replaced by a defined contribution scheme.
HR professionals have a key role to play in being
honest about the real picture and its alternatives, and
informing employees of all the implications.

Pension Fund Regulatory &

Development Authority
Pension Fund Regulatory and Development

Authority was established by the Government

of India on 23rd August 2003to promote old
age income security by establishing,
developing and regulating pension funds, to
protect the interests of subscribers to
schemes of pension funds and for matters
connected therewith or incidental thereto.

PFRDA
The Pension Fund Regulatory and

Development Authority Bill, 2005 was initially

introduced in the Lok Sabha in March, 2005 to
provide for a statutory PFRDA.
The Bill lapsed on dissolution of the 14th Lok
Sabha.
The PFRDA Bill, 2011 was introduced in the
Lok Sabha on the 24th March, 2011.
The legislation sought to empower PFRDA to
regulate the New Pension System (NPS).

Official amendments to the Pension Fund Regulatory

and Development Authority Bill, 2011
that the subscriber seeking minimum assured returns shall be

allowed to opt for investing his funds in such schemes as may be

notified by the Authority;
withdrawals not exceeding 25 per cent of the contribution made by
subscriber will be permitted from the individual pension account as
may be specified by PFRDA
the foreign investment ceiling in the pension sector at 26 per cent or
such percentage as may be approved for the Insurance Sector,
whichever is higher may be incorporated in the present legislation;
to establish a vibrant Pension Advisory Committee with
representation from all major stakeholders to advise PFRDA on
important matters of framing of regulations under the PFRDA Act.
the membership of the PFRDA will be confined to professionals
having expertise in economics, finance or law only

National Pension
scheme(nps)
National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme designed

to enable the subscribers to make optimum decisions regarding their future through systematic savings
during their working life. NPS seeks to inculcate the habit of saving for retirement amongst the citizens.
It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement
income to every citizen of India.

Under the NPS, individual savings are pooled in to a pension fund which are invested by PFRDA regulated

professional fund managers as per the approved investment guidelines in to the diversified portfolios
comprising of government bonds, bills, corporate debentures and shares. These contributions would grow
and accumulate over the years, depending on the returns earned on the investment made.

At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the

scheme to purchase a life annuity from a PFRDA empanelled life insurance company apart from
withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.

advantages in joining NPS

Flexible- NPS offers a range of investment options and choice of Pension Fund Manager (PFMs) for

planning the growth of your investments in a reasonable manner and see your money grow.
Individuals can switch over from one investment option to another or from one fund manager to
another subject, of course, to certain regulatory restrictions. The returns being totally market-related.
Simple Opening an account with NPS provides a Permanent Retirement Account Number (PRAN),

which is a unique number and it remains with the subscriber throughout his lifetime. The scheme is
structured into two tiers:
Tier-I account:This is the non - withdrawable permanent retirement account into which the accumulations

are deposited and invested as per the option of the subscriber.

Tier-II account:This is a voluntary withdrawable account which is allowed only when there is an active Tier

I account in the name of the subscriber. The withdrawals are permitted from this account as per the needs of
the subscriber as and when claimed.

Portable-NPS provides seamless portability across jobs and across locations, unlike all current

pension plans, including that of the EPFO. It would provide hassle-free arrangement for the individual
subscribers.

Regulated-NPS is regulated by PFRDA, with transparent investment norms, regular monitoring and
performance review of fund managers by NPS Trust.

Contributory Provident Fund

The Contributory Provident Fund Rules (India), ,1962 are applicable to every non-pensionable

servant of the Government belonging to any of the services under the control of the President.
A subscriber, at the time of joining the Fund is required to make a nomination in the prescribed

Form conferring on one or more persons the right to receive the amount that may stand to his
credit in the Fund in the event of his death, before that amount has become payable or having
become payable has not been paid.
A subscriber shall subscribe monthly to the Fund when on duty or Foreign Service but not during

the period of suspension. Rates of subscription shall not be less than 10% of the emoluments and
not more than his emoluments.
The employer's contribution at that percentage prescribed by the Government will be credited to

the subscriber's account and this is 10%. Rate of interest with effect from 1.4.2009 is 8%
compounded annually. The Rules provide for drawl of advances/ withdrawals from the CPF for
specific purposes.

General Provident Fund

and Incentives
As per General Provident Fund (Central Services) Rules, 1960, all temporary Government servants after a

continuous service of one year, all re-employed pensioners (Other than those eligible for admission to the
Contributory Provident Fund) and all permanent Government servants are eligible to subscribe to the Fund.
A subscriber, at the time of joining the fund is required to make a nomination, in the prescribed form,

conferring on one or more persons the right to receive the amount that may stand to his credit in the fund
in the event of his death, before that amount has become payable or having become payable has not been
paid.
A subscriber shall subscribe monthly to the Fund except during the period when he is under suspension.

Subscriptions to the Provident Fund are stopped 3 months prior to the date of superannuation.
Rates of subscription shall not be less than 6% of subscriber's emoluments and not more than his total

emoluments. Rate of interest on GPF accumulations with effect from 1.4.2009 is 8% compounded annually
and the rate of interest will vary according to notifications of the Government.

NDCPF